Marketing agreements between competitors: the Paris Court of Appeal reminds the Competition Authority of the need to take into account the economic and legal context

The Paris Court of Appeal recently overturned a decision handed down by the French Competition Authority, considering that the marketing agreements between competitors did not have an anticompetitive purpose due to the legal and economic context specific to the agreements in question. As a reminder, the Authority had found that the France Farine and Bach Mühle joint venture, created between various millers in order to jointly market packaged flour, sought to restrict competition. The Authority had noted that the purpose of these marketing agreements was not a result of these companies’ by-laws, but that the management and functioning of these companies led to joint fixing of the price of packaged flour sold to hypermarkets and supermarkets, and to the sharing of clients, which were supplied by the factory of the nearest company.

The millers condemned by the Authority argued before the Court of Appeal that, given the legal and economic context in which France Farine and Bach Mühle found themselves, these marketing structures cannot constitute anticompetitive cartels as their respective incorporation, which took place in a specific legislative and regulatory context, prior to the order of 1986, was necessary for the companies in question in order to operate on the market on a national basis.

To respond favorably to these arguments, the Court of Appeal firstly recalled consistently held case law, according to which, in order to assess the anticompetitive nature of an agreement, the contents of the provisions, the objectives and the economic and legal context must be considered in particular. With respect to the economic context of the marketing agreements in question, the Court noted that the agreements were entered into at a time when economic regulations were still influenced by the administered economic system, both in terms of the price and manufacture; this must be taken into account in order to assess whether the purpose was anticompetitive.

As for the objectives of the marketing agreements, the Court of Appeal holds that the incorporation of France Farine and Bach Mühle took place in an economic context characterized by the increased importance of mass market retailing which enjoyed substantial bargaining powers. The Court of Appeal highlighted in this respect that the increase in mass market retailing, which took the form of the takeover of brands or affiliated distributors, was accompanied by the disappearance of numerous economic players which, up until then, had allowed millers to sell off their production in a geographical area corresponding to their traditional local or regional installation, and that the millers’ numerous buyers were gradually replaced by seven purchasing bodies for the whole of France which now own almost 100 percent of the outlets for the sale of packaged flour.

Thus, the claimants are entitled to argue that they were encouraged to group together in joint marketing structures in order to meet demand effectively, which had become national through calls for tenders launched by mass market retailers.

The Court of Appeal concluded that these joint marketing organizations did not have an anticompetitive purpose, and therefore overturned the order related to this accusation, i.e. €146.9 million for the seven companies concerned.

Following the chicory case in which the Court of Appeal overturned the Authority’s decision as it did not take into account the specific context of this farming sector, this marks yet another setback for the Authority. As an appeal has already been filed, the position adopted by the Supreme Court will be eagerly awaited. 

The Court of the European Union regulates the practice of holding parent companies liable for the anticompetitive conduct of their subsidiaries

Two recent judgments handed down by the Court of the European Union set limits to the liability of parent companies for the anticompetitive practices of their subsidiaries.

As a reminder, decision-making practices both on a European and French level are characterized by a presumption, which is in theory rebuttable, according to which a parent company holding 100 percent of the capital of its subsidiary has a decisive influence over the commercial policy of the latter and is therefore liable for infringements of competition regulations committed by it.

However, the Court recently reminded the European Commission of the need to provide sufficient grounds for dismissing the arguments of a parent company seeking to overturn the presumption of imputability. In the case in question, the parent company had sought to demonstrate before the Commission that its subsidiaries acted independently in the anticompetitive cartel. In response to these arguments, the Commission merely noted that said arguments were not sufficient to overturn the presumption of imputability of the infringement to the parent company.

According to the Court, the Commission’s reasoning does not respond to the claimant’s arguments, which were neither irrelevant nor meaningless for the purposes of rebutting the presumption given that the parent company had invoked special circumstances characterizing relations with its subsidiary, such as the principle of operational decentralization of the group, sole liability of the subsidiaries in defining the commercial policy and the fact that, due to the structure of the group, it was impossible for it to control its subsidiary’s commercial policy. The Court found that the Commission had breached its obligation to state reasons, and as a result the Commission’s decision concerning the parent company was overturned.

In another decision, the Court held that aggravating circumstances against the parent company cannot be applied on the basis of prior decisions which only concerned its subsidiaries, by imputing liability to the parent company for infringements committed by its subsidiaries.The imputability of a subsidiary’s practices to the parent company is therefore not inevitable. It is up to the parent company to demonstrate that it does not in fact control the subsidiary in question, without it being able to argue based solely on the fact that its purpose is limited to the holding and management of shares in the group.

Confirmation by the Court of the European Union that the French National Order of Pharmacists restricted competition on the biomedical analysis market

In 2010, the Commission had imposed a fine of €5 million on the French National Order of Pharmacists (ONP) for restricting competition on the biomedical analysis market. On the one hand, the ONP prevented groups of laboratories from growing due to measures seeking to hinder holdings in the capital of laboratories and, on the other hand, it imposed a minimum price for analysis services by prohibiting these laboratories from granting discounts of more than 10 percent.

The ONP challenged this decision by arguing that these actions were exempt from competition law as its activities were that of a public authority, justified by the protection of public health. All of the measures for which it is reproached allegedly seek simply to ensure that the law regulating shareholdings and discount is respected. The Court dismissed this argument, considering that the ONP does not have regulatory powers and that the authority of member states to make restrictions to the freedom of establishment in the name of protecting public health does not authorize private bodies or associations of undertakings to infringe competition regulations by imposing restrictions that the State itself does not provide for, or by interpreting the law in an extensive manner.

With respect to the amount of the fine, which the ONP requested be symbolic, the Court responded that the fact that the Order was not seeking to make a profit does not mean that it does not benefit a number of private interests. Moreover, the fact that a change in legislation subsequently prohibited discount should not reduce the sanction which concerns past behavior and which seeks to dissuade against other infringements in the future. The Court agreed nonetheless to reduce the fine by a small amount due to the Commission’s failure to take full account of a circular which influenced the practices for which the ONP is criticized. The fine is reduced to €4.75 million. For the first time, it is intended that companies active on the market in question will be able to settle the fine imposed on the ONP.